In Auckland, home to a quarter of the nation’s 4.4 million
people, demand fueled by mortgage rates near a record low saw a
rundown bungalow last month sell for NZ$1.05 million ($861,600),
or 2 1/2 times the average New York home. Prices nationally rose
6.3 percent in the year ended Feb. 28, the most since March
2008, according to a government-owned property research company.

Wheeler, who kept the benchmark interest rate unchanged at
a record-low 2.5 percent yesterday, is considering raising home-
buyers’ minimum deposits and tightening restrictions on bank
balance sheets to ward off the risks of a property bubble. He’s
set to join counterparts from China to Canada in using such
tools rather than raising borrowing costs, which would stoke
demand for a currency that’s jumped 59 percent in four years.

“With housing picking up over the past 12 months and the
currency near its highs, the RBNZ is under pressure from various
sources to move more quickly on this stuff,” said Darren Gibbs,
New Zealand chief economist at Deutsche Bank AG in Auckland and
an ex-Reserve Bank of New Zealand analyst.

Wheeler, a former managing director of the World Bank,
returned to his homeland in September to take the reins at the
RBNZ amid calls from the opposition to take pressure off the
currency. Six months into the job, he’s starting to stamp his
authority.

‘Hands On’

In the past five weeks he has picked former Treasury
Department colleague Geoff Bascand as a deputy, said he’ll form
a new committee to discuss key policy decisions, and laid out
the potential prudential measures. Yesterday, he said he expects
to keep the key rate unchanged through the end of the year and
is prepared to lower the benchmark rate if the currency rises
more than the economy justifies.

Wheeler “is perhaps more hands on,” said Robin Clements,
chief New Zealand economist at UBS AG in Christchurch. “It
looks like there’s more will to have something there and to be
seen to be trying to do something different.”

The central bank has “tunnel vision” because of its
inflation focus, opposition Labour Party finance spokesman David Parker said yesterday. He’s in favor of adopting the prudential
tools and wants the RBNZ to also target the currency and
employment.

Policy Dilemna

As well as helping the RBNZ manage the housing cycle
without adjusting the benchmark rate, the prudential measures
will help it take steps to ensure the integrity of the banking
system and protect it from a sudden reversal in property prices.

The RBNZ faces policy “trade-offs” as an interest rate
cut would help low inflation return to target sooner, but would
also exacerbate strength in house prices and risk pushing up
private debt levels, John McDermott, assistant governor and head
of economics, said in a speech in Wellington today.

“In the near future, macro-prudential measures will be
part of the toolkit for responding to financial stability
risks,” he said. “These measures will generally support and
complement our efforts to stabilise inflation with monetary
policy, as upswings in the macroeconomy often coincide with
increasing asset prices and leverage.”

Housing Risks

Given the elevated exchange rate, the “last thing” New
Zealand needs is “a housing price bubble that gets out of
control,” Wheeler told a parliament committee yesterday.
“That’s one of the reasons why we’re moving quite fast on the
macro-prudential instruments.”

The RBNZ on March 4 sought submissions from banks on the
prudential tools and said it wants to reach an agreement with
the government on how to use them by mid-year. They include
proposals to mandate funding ratios, capital buffers, and
specify minimum loan-to-property value levels.

Wheeler’s concern is that low interest rates and other
incentives will spark excessive borrowing at a time family
balance sheets are already stretched. Household debt was 142
percent of income at September, according to RBNZ figures.

Median prices in Auckland have increased 14 percent the
past year to a NZ$535,000, the Real Estate Institute of New
Zealand said this week. The suburban bungalow that attracted
almost twice that price came with 940 square meters of land.
Average New York prices were $346,100 in January, according to
the Zillow Inc. home value index.

‘Sitting Duck’

“If we started to see across the board housing strength in
the second half, not just Auckland, we’d be a sitting duck for
some sort of regulatory hand from the RBNZ hitting us before the
end of 2013,” said Cameron Bagrie, chief economist at ANZ Bank
New Zealand Ltd., the nation’s largest lender.

China has since April 2010 moved to stamp out speculation
in the property market by raising the down-payment requirement
on first mortgages, ordering a minimum 60 percent deposit for
second-home purchases and an increase in rates for second loans.
Sweden and Canada have employed restrictions on loan-to-value
ratios aimed at curbing demand for credit.

Elsewhere in the Asia-Pacific region, Singapore’s retail
sales probably fell for a fourth month in January, according to
economists surveyed by Bloomberg News. Philippine overseas
worker remittances may have risen in January from a year
earlier, a separate survey showed. Japan’s Cabinet Office is due
to release its monthly economic report for March.

Euro Inflation

U.S. consumer prices may have risen at a faster pace from a
month earlier in February, a Bloomberg survey showed. An index
of manufacturing activity in the New York region in March
probably held near the highest since May 2012.

Price pressures in New Zealand are set to intensify, making
rate increases after this year a possibility, as a squeeze on
resources from rebuilding of earthquake devastated Christchurch
fans inflation. The nation’s third-largest city is attracting
tradesmen, curbing the pace of new building elsewhere,
particularly Auckland where a shortage of new homes is helping
push up property prices.

“The fundamental problem in housing is a supply
deficiency,” said Stephen Toplis, head of research at Bank of
New Zealand in Wellington. “We need prices to rise to encourage
building, but then people could start re-leveraging off those
increasing valuations. It’s a really nasty situation for the
bank.”